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Comprehensive Business Valuation Sample
Comprehensive Business Valuation Sample
Comprehensive Business Valuation Sample
Comprehensive Business Valuation Sample
Comprehensive Business Valuation Sample
Comprehensive Business Valuation Sample
Comprehensive Business Valuation Sample
Comprehensive Business Valuation Sample
Comprehensive Business Valuation Sample
Comprehensive Business Valuation Sample
Comprehensive Business Valuation Sample
Comprehensive Business Valuation Sample
Comprehensive Business Valuation Sample
Comprehensive Business Valuation Sample
Comprehensive Business Valuation Sample
Comprehensive Business Valuation Sample
Comprehensive Business Valuation Sample
Comprehensive Business Valuation Sample
Comprehensive Business Valuation Sample
Comprehensive Business Valuation Sample
Comprehensive Business Valuation Sample
Comprehensive Business Valuation Sample
Comprehensive Business Valuation Sample
Comprehensive Business Valuation Sample
Comprehensive Business Valuation Sample
Comprehensive Business Valuation Sample
Comprehensive Business Valuation Sample
Comprehensive Business Valuation Sample
Comprehensive Business Valuation Sample
Comprehensive Business Valuation Sample
Comprehensive Business Valuation Sample
Comprehensive Business Valuation Sample
Comprehensive Business Valuation Sample
Comprehensive Business Valuation Sample
Comprehensive Business Valuation Sample
Comprehensive Business Valuation Sample
Comprehensive Business Valuation Sample
Comprehensive Business Valuation Sample
Comprehensive Business Valuation Sample
Comprehensive Business Valuation Sample
Comprehensive Business Valuation Sample
Comprehensive Business Valuation Sample
Comprehensive Business Valuation Sample
Comprehensive Business Valuation Sample
Comprehensive Business Valuation Sample
Comprehensive Business Valuation Sample
Comprehensive Business Valuation Sample
Comprehensive Business Valuation Sample
Comprehensive Business Valuation Sample
Comprehensive Business Valuation Sample
Comprehensive Business Valuation Sample
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Comprehensive Business Valuation Sample

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Business Valuation sample, Business Valuations, Sample Business Valuations, American Fortune Busines

Business Valuation sample, Business Valuations, Sample Business Valuations, American Fortune Busines

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  • 1. This sample Valuation was generated by American Fortune Business Valuations, LLC505 Third Street, Suite 301, Louisville, KY 40202 www.fortunebta.comComprehensive ValuationSample Industries, Inc.As of June 30, 2010Prepared for:Timothy Jones, CEOSample Industries, Inc.Prepared by:Brian S. Mazar, MBA, AVA, CBIAmerican Fortune Business Valuations, LLC505 Third Street, Suite 301Louisville, KY 40202The information contained herein is of a confidential nature and is intended for theexclusive use of the persons or firm for whom it was prepared. Reproduction,publication or dissemination of all or portions hereof may not be made without priorapproval from American Fortune Business Valuations, LLC
  • 2. This sample Valuation was generated by American Fortune Business Valuations, LLC505 Third Street, Suite 301, Louisville, KY 40202 www.fortunebta.comTimothy Jones, CEOSample Industries, Inc.123 Main Street, Suite 2252San Diego, CA 92126RE: Sample Industries, Inc.Dear Timothy Jones, CEO:At your request, we have performed a valuation engagement, as defined in the Statement on Standards forValuation Services (SSVS) of the American Institute of Certified Public Accountants, of 100.00% of thecommon stock of Sample Industries, Inc. as of June 30, 2010. This valuation was performed solely toassist in the matter of Estate Planning; the resulting estimate of value should not be used for any otherpurpose or by any other party for any purpose. This valuation engagement was conducted in accordancewith the SSVS. The estimate of value that results from a valuation engagement is expressed as aconclusion of value.Based on our analysis as described within this valuation report, the estimate of value of 100.00% of thecommon stock of Sample Industries, Inc. as of June 30, 2010 was $16,800,000, as summarized below.This conclusion is subject to the Statement of Assumptions and Limiting Conditions presented later in thisreport and to our Representations also presented later in this report. We have no obligation to update thisreport or our conclusion of value for information that comes to our attention after the date of this report.Respectfully,(Signature)(Date)
  • 3. This sample Valuation was generated by American Fortune Business Valuations, LLC505 Third Street, Suite 301, Louisville, KY 40202 www.fortunebta.comDiscount & Capitalization Rate Estimates 28— Table of Contents —OBJECTIVE 1EXTERNAL SOURCES OF INFORMATION 2INTERNAL SOURCES OF INFORMATION 2ASSUMPTIONS AND LIMITING CONDITIONS 3COMPANY BACKGROUND 4Company Identification 4Nature and History of the Company 4Stock Classes and Ownership 4Management Team 4Product and Service Information 4Market Data and Analysis/Competition 4Governmental or Regulatory Environment 5Key Customers and Suppliers 5Marketing Strategy 5Business Risks 5Current Operations 5Company Expectations 5Other Observations 5NATIONAL ECONOMIC AND INDUSTRY CONDITIONS 6General Economic Conditions and Outlook 6Industry Conditions and Outlook 6HISTORICAL AND NORMALIZED FINANCIAL STATEMENTS 7Summary Historical Income Statements 7Income Statement Adjustments 7Normalized Historical Income Statements 8Summary Historical Balance Sheets 8Balance Sheet Adjustments 9Normalized Historical Balance Sheets 9Summary Historical Statements of Cash Flows 10Normalized Earnings and Net Cash Flow Summary 11Normalized Interim Financial Statements 12ANALYSIS OF HISTORIC FINANCIAL STATEMENTS 14Business Common-Size Financial Statements 14Business vs. Industry Common-Size Financial Statements 16Business Financial Ratio Analysis 19Business vs. Industry Financial Ratio Comparison 22VALUATION OF SAMPLE INDUSTRIES, INC. 24Overview of Valuation Approaches and Methods 25Preferred Stock Valuation 26Net Asset Value 27Liquidation Value 27
  • 4. This sample Valuation was generated by American Fortune Business Valuations, LLC505 Third Street, Suite 301, Louisville, KY 40202 www.fortunebta.comCapitalization of Earnings 29Discounted Future Earnings 30Projection Summary 30Summary Income Statement Projections 31Summary Balance Sheet Projections 31Summary Retained Earnings Projections 32Summary Cash Flow Projections 32Summary Sources & Uses of Funds Projections 32Overview of Projection Assumptions 32Revenue & Expense Assumptions 32Fixed Asset Depreciation Assumptions 33Disposals of Existing Fixed Assets 33Fixed Asset Purchases 34Existing Notes Receivable Assumptions 34Amortization of Intangible Assets 34Existing Notes Payable Assumptions 34Fixed Asset Purchase Financing Assumptions 35Dividends Assumptions 35Discounted Future Earnings Value Calculations 36Comparative Company Method 36Search for Comparatives 37Comparable Companies from the Completed Transactions Database 37Comparable Companies from the Pratts Stats Database 38Comparable Companies from the BIZCOMPS Database 38Price to Earnings Multiple 38Price to Revenue Multiple 38Price to Gross Cash Flow Multiple 38Mergerstat Price to Earnings Multiple 39Completed Transactions Price to Earnings Multiple 39Completed Transactions Price to Revenue Multiple 39Completed Transactions Price to Cash Flow from Operations Multiple 39Completed Transactions Price to Assets Multiple 40Completed Transactions Price to Stockholders Equity Multiple 40Pratts Stats Equity Price to Net Sales Multiple 40Pratts Stats Equity Price to Gross Cash Flow Multiple 40Pratts Stats Equity Price to EBT Multiple 41Pratts Stats Equity Price to Net Income Multiple 41Pratts Stats Deal Price to Net Revenue Multiple 41Pratts Stats Deal Price to EBITDA Multiple 41Pratts Stats Deal Price to EBIT Multiple 42BIZCOMPS Sales Price to Revenue Multiple 42BIZCOMPS Sales Price to Sellers Discretionary Cash Flow Multiple 42Capitalization of Excess Earnings 43Multiple of Discretionary Earnings 45Conclusions of Value 46
  • 5. This sample Valuation was generated by American Fortune Mergers & Acquisitions, LLC505 Third Street, Suite 301, Louisville, KY 40202 www.fortunebta.com5ObjectiveOur objective was to estimate the Fair Market Value of 100.00% of Sample Industries, Inc. (the “Company”) as ofJune 30, 2010. We were engaged by Timothy Jones, CEO, Sample Industries, Inc. to issue a detailed report. TheCompany is a C-Corporation and is organized under the laws of California. It is primarily engaged in thebusiness of Manufacturing of Sporting Goods and operates under the trade name of Samples Sporting Equipment.The standard of value used in our valuation of Sample Industries, Inc. is Fair Market Value. Fair Market Value isthe price, in cash or equivalent, that a buyer could reasonably be expected to pay, and a seller could reasonably beexpected to accept, if the business were exposed for sale on the open market for a reasonable period of time, withboth buyer and seller being in possession of the pertinent facts and neither being under any compulsion to act.The purpose of this valuation is Estate Planning. This report is prepared for Timothy Jones, CEO, SampleIndustries, Inc. and should not be used by others. This report is dated_______.Our opinion of Fair Market Value relied on a “value in use” or going concern premise. This premise assumes thatthe Company is an ongoing business enterprise with management operating in a rational way with a goal ofmaximizing shareholder value.Our analysis considers those facts and circumstances present at the Company at the Valuation Date. Our opinionwould most likely be different if another Valuation Date was used. There were no restrictions or limitations in thescope of our work or in the data available for analysis, and no hypothetical assumptions were used.To arrive at our conclusion of Fair Market Value, we performed the following procedures:* Collected the Companys relevant historic financial statements.* Analyzed the historic financial statements by calculating financial ratios and common-size financialstatements for each historic year in order to identify trends.* Compared the Companys financial ratios and common-size financial statements to industry guidelinedata to identify any significant variances.* Assisted management in preparing a 5 year projection of the financial statements based onmanagements assumptions as to the Companys future outlook.* Developed risk-adjusted Capitalization and Discount Rates to apply to the Companys historic andprojected earnings, respectively.* Collected and analyzed transactional data from comparable companies within the same industry.* Adjusted historic earnings to eliminate the effects of excess and discretionary expenses, nonoperatingrevenues and expenses, and non-transferable revenue streams.* Applied Asset, Income, Market, and Other valuation approaches to determine an estimate of Total EntityValue. The following methods were considered under each approach:1. Asset ApproachNet Asset Value and Liquidation Value2. Income ApproachCapitalization of Earnings and Discounted Future Earnings.3. Market ApproachPrice to Earnings, Price to Revenue, Price to Gross Cash Flow, Price to Cash Flow fromOperations, Price to Sellers Discretionary Cash Flow, Price to Dividends, Price to BookValue, Price to Total Assets and Price to Stockholders Equity.
  • 6. This sample Valuation was generated by American Fortune Mergers & Acquisitions, LLC505 Third Street, Suite 301, Louisville, KY 40202 www.fortunebta.com64. OtherCapitalization of Excess Earnings and Multiple of Discretionary Earnings* Selected the most reasonable Total Entity Value from the range of values established in the valuationmethods and then applied any appropriate discounts to arrive at our conclusion of the estimated FairMarket Value of the interest.External Sources of InformationTo aid us in our analysis of the Company, we consulted a number of publicly available sources of information.Numerous financial publications and databases were consulted including Business Statistics, Standard & PoorsIndustry Surveys, Mergerstat Review, U.S. Financial Data, Standard & Poors Register of Corporations, Directors,and Executives, and Value Line Investment Survey.Internal Sources of InformationTo aid us in our analysis of the Company, we interviewed the following personnel:
  • 7. This sample Valuation was generated by American Fortune Mergers & Acquisitions, LLC505 Third Street, Suite 301, Louisville, KY 40202 www.fortunebta.com7Assumptions and Limiting ConditionsThis valuation is subject to the following assumptions and limiting conditions:1. Information, estimates, and opinions contained in this report are obtained from sources considered to bereliable. However, we assume no liability for such sources.2. The Company and its representatives warranted to us that the information they supplied was complete andaccurate to the best of their knowledge and that the financial statement information reflects the Companys resultsof operations and financial condition in accordance with generally accepted accounting principles, unlessotherwise noted. Information supplied by management has been accepted as correct without further verification,(and we express no opinion on that information).3. Possession of this report, or a copy thereof, does not carry with it the right of publication of all or part of it, normay it be used for any purpose by anyone but the client without the previous written consent of the client or us and,in any event, only with proper attribution.4. We are not required to give testimony in court, or be in attendance during any hearings or depositions, withreference to the company being valued, unless previous arrangements have been made.5. The various estimates of value presented in this report apply to this valuation only and may not be used out ofthe context presented herein. This valuation is valid only for the purpose or purposes specified herein.6. (This valuation assumes that the Company will continue to operate as a going concern, and that the characterof its present business will remain intact.)7. The valuation contemplates facts and conditions existing as of the valuation date. Events and conditionsoccurring after that date have not been considered, and we have no obligation to update our report for such eventsand conditions.8. We have assumed that there is full compliance with all applicable federal, state, and local regulations and lawsunless otherwise specified in this report.9. This report was prepared under the direction of Brian S. Mazar, MBA, CBI. Neither the professionals whoworked on this engagement nor American Fortune Mergers & Acquisitions, LLC have any present orcontemplated future interest in Sample Industries, Inc., any personal interest with respect to the parties involved,or any other interest that might prevent us from performing an unbiased valuation. Our compensation is notcontingent on an action or event resulting from the analyses, opinions, or conclusions in, or the use of, this report.
  • 8. This sample Valuation was generated by American Fortune Mergers & Acquisitions, LLC505 Third Street, Suite 301, Louisville, KY 40202 www.fortunebta.com8Company BackgroundCompany IdentificationSample Industries, Inc. is a C-Corporation organized under the laws of California and located at 123 Main Street,Suite 2252, San Diego, CA, 92126. The Company can be categorized under the Standard Industrial Classification(SIC) Code of 3949 and North American Industry Classification System (NAICS) Code of .Nature and History of the CompanyEstablished in 1989, the Company is primarily engaged in the business of Manufacturing of Sporting Goods andoperates under the trade name of Samples Sporting Equipment.Stock Classes and OwnershipXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXManagement TeamXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXProduct and Service InformationXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXMarket Data and Analysis/CompetitionXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
  • 9. This sample Valuation was generated by American Fortune Mergers & Acquisitions, LLC505 Third Street, Suite 301, Louisville, KY 40202 www.fortunebta.com9Governmental or Regulatory EnvironmentXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXKey Customers and SuppliersXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXMarketing StrategyXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXBusiness RisksXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXCurrent OperationsXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXCompany ExpectationsXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXOther ObservationsXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
  • 10. This sample Valuation was generated by American Fortune Mergers & Acquisitions, LLC505 Third Street, Suite 301, Louisville, KY 40202 www.fortunebta.com10National Economic and Industry ConditionsGeneral Economic Conditions and OutlookXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXIndustry Conditions and OutlookXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
  • 11. This sample Valuation was generated by American Fortune Mergers & Acquisitions, LLC505 Third Street, Suite 301, Louisville, KY 40202 www.fortunebta.com1127,450 42,700 61,000 79,299 97,599Historical and Normalized Financial StatementsSummary Historical Income Statements2005 2006 2007 2008 2009Net Sales Revenue 25,302,860 26,494,580 28,043,400 29,219,270 31,541,420Total Cost of Goods SoldGross Profit20,165,679 21,681,757 22,263,336 22,943,789 23,870,297Total Selling Expenses5,137,181 4,812,823 5,780,064 6,275,481 7,671,123749,750 813,180 917,500 997,500 1,316,990Total General & Administrative ExpensesIncome From Operations3,037,730 2,486,432 3,319,075 3,616,368 4,129,399Total Other Revenues and Expenses1,349,701 1,513,211 1,543,489 1,661,613 2,224,734Income Before Taxes(623,774) (613,150) (563,153) (533,769) (486,062)Total Income Taxes725,927 900,061 980,336 1,127,844 1,738,672Net Income283,111 351,024 382,331 439,859 678,082442,816 549,037 598,005 687,985 1,060,590COMMENTS:Income Statement AdjustmentsAdd/(deduct) income adjustments:Nonoperating income2005 2006 2007 2008 2009(20,000) (30,000) (40,000) (50,000) (60,000)Total income adjustmentsAdd/(deduct) expense adjustments:Officer/Owners Compensation(20,000) (30,000) (40,000) (50,000) (60,000)(50,000) (75,000) (100,000) (125,000) (150,000)Research and development (5,000) (5,000) (10,000) (15,000) (20,000)Less: Nonoperating expense (10,000) (20,000) (30,000) (40,000) (50,000)Total expense adjustmentsTotal income & expense adjustments before tax(65,000) (100,000) (140,000) (180,000) (220,000)45,000 70,000 100,000 130,000 160,000Less: Tax effect *Total Adjustments net of Tax effect17,550 27,300 39,001 50,701 62,401
  • 12. This sample Valuation was generated by American Fortune Mergers & Acquisitions, LLC505 Third Street, Suite 301, Louisville, KY 40202 www.fortunebta.com12Normalized Historical Income Statements2005 2006 2007 2008 2009Net Sales Revenue 25,302,860 26,494,580 28,043,400 29,219,270 31,541,420Total Cost of Goods SoldGross Profit20,165,679 21,681,757 22,263,336 22,943,789 23,870,297Total Selling Expenses5,137,181 4,812,823 5,780,064 6,275,481 7,671,123749,750 813,180 917,500 997,500 1,316,990Total General & Administrative ExpensesIncome From Operations2,982,730 2,406,432 3,209,075 3,476,368 3,959,399Total Other Revenues and Expenses1,404,701 1,593,211 1,653,489 1,801,613 2,394,734Income Before Taxes(633,774) (623,150) (573,153) (543,769) (496,062)Total Income Taxes770,927 970,061 1,080,336 1,257,844 1,898,672Net Income300,661 378,324 421,332 490,560 740,483470,266 591,737 659,005 767,284 1,158,189Summary Historical Balance SheetsASSETSTotal Current Assets 4,956,423 5,427,189 6,388,104 7,147,785 7,509,604Net Fixed Assets 5,142,852 4,962,042 4,634,661 5,534,900 5,363,423Total Long-Term Investments 3,904,180 3,583,210 3,672,670 2,204,390 1,651,210Net Intangible Assets 245,670 236,340 227,010 217,680 208,350Total Other Noncurrent Assets2005 2006 2007 2008 2009LIABILITIES & STOCKHOLDERS EQUITY550,000 710,000 770,000 780,000 790,000Total Assets 14,799,125 14,918,781 15,692,445 15,884,755 15,522,587Total Current Liabilities 2,663,694 2,817,600 3,464,091 3,797,653 3,555,398Total Long-Term Debt 5,990,265 5,734,045 5,317,415 4,896,531 4,257,082Total Other Long-Term Liabilities 27,000 27,000 27,000 27,000 27,000Total LiabilitiesStockholders Equity:8,680,959 8,578,645 8,808,506 8,721,184 7,839,480Preferred stock 800,000 800,000 850,000 850,000 850,000Common stock 2,780,000 2,780,000 3,000,000 3,000,000 3,000,000Retained earningsTotal Stockholders Equity2,538,166 2,760,136 3,033,939 3,313,571 3,833,107Total Liabilities & Stockholders Equity6,118,166 6,340,136 6,883,939 7,163,571 7,683,10714,799,125 14,918,781 15,692,445 15,884,755 15,522,587COMMENTS:
  • 13. This sample Valuation was generated by American Fortune Mergers & Acquisitions, LLC505 Third Street, Suite 301, Louisville, KY 40202 www.fortunebta.com13Balance Sheet Adjustments2005 2006 2007 2008 2009Nonoperating assets 60,000 70,000 80,000 90,000 100,000Normalization adjustment (60,000) (70,000) (80,000) (90,000) (100,000)Adjusted balance 0 0 0 0 0Nonoperating liabilities 27,000 27,000 27,000 27,000 27,000Normalization adjustment (27,000) (27,000) (27,000) (27,000) (27,000)Adjusted balance 0 0 0 0 0Net Adjustments:Asset Adjustments (60,000) (70,000) (80,000) (90,000) (100,000)Less: Liability Adjustments (27,000) (27,000) (27,000) (27,000) (27,000)Less: Common & Preferred Stock AdjustmentsRetained Earnings Adjustment (33,000)0 0 0 0 0(43,000) (53,000) (63,000) (73,000)Normalized Historical Balance SheetsASSETS2005 2006 2007 2008 2009Total Current Assets 4,956,423 5,427,189 6,388,104 7,147,785 7,509,604Net Fixed Assets 5,142,852 4,962,042 4,634,661 5,534,900 5,363,423Total Long-Term Investments 3,904,180 3,583,210 3,672,670 2,204,390 1,651,210Net Intangible Assets 245,670 236,340 227,010 217,680 208,350Total Other Noncurrent AssetsLIABILITIES & STOCKHOLDERS EQUITY490,000 640,000 690,000 690,000 690,000Total Assets 14,739,125 14,848,781 15,612,445 15,794,755 15,422,587Total Current Liabilities 2,663,694 2,817,600 3,464,091 3,797,653 3,555,398Total Long-Term Debt 5,990,265 5,734,045 5,317,415 4,896,531 4,257,082Total Other Long-Term Liabilities 0 0 0 0 0Total LiabilitiesStockholders Equity:8,653,959 8,551,645 8,781,506 8,694,184 7,812,480Preferred stock 800,000 800,000 850,000 850,000 850,000Common stock 2,780,000 2,780,000 3,000,000 3,000,000 3,000,000Retained earningsTotal Stockholders Equity2,505,166 2,717,136 2,980,939 3,250,571 3,760,107Total Liabilities & Stockholders Equity6,085,166 6,297,136 6,830,939 7,100,571 7,610,10714,739,125 14,848,781 15,612,445 15,794,755 15,422,587
  • 14. This sample Valuation was generated by American Fortune Mergers & Acquisitions, LLC505 Third Street, Suite 301, Louisville, KY 40202 www.fortunebta.com14Summary Historical Statements of Cash Flows2005 2006 2007 2008 2009Net Cash Flow From Operations 981,516 862,646 1,430,146 1,600,486Net Cash Flow From Investments (633,999) (1,046,000) (740,000) (406,999)Net Cash Flow From FinancingNet Cash Flow(438,081) 189,579 (686,075) (1,184,348)Cash at Beginning of Year(90,564) 6,225 4,071 9,139Cash at End of Year313,943 223,379 229,604 233,675223,379 229,604 233,675 242,814COMMENTS:
  • 15. This sample Valuation was generated by American Fortune Mergers & Acquisitions, LLC505 Third Street, Suite 301, Louisville, KY 40202 www.fortunebta.com15Normalized Earnings and Net Cash Flow SummaryTotal income & expense adjustments before tax2005 2006 2007 2008 200945,000 70,000 100,000 130,000 160,000Less: Tax effect * 17,550 27,300 39,001 50,701 62,401Less: Adjustment to Historic Tax 0 0 0 0 0Plus: adjustments to net of tax itemsNet adjustments0 0 0 0 0Plus: Historic net income27,450 42,700 61,000 79,299 97,599Normalized Net income442,816 549,037 598,005 687,985 1,060,590Plus: Normalized income taxes470,266 591,737 659,005 767,284 1,158,189Normalized EBT300,661 378,324 421,332 490,560 740,483Plus: Normalized interest expense770,927 970,061 1,080,336 1,257,844 1,898,672Normalized EBIT678,434 674,560 656,923 648,429 603,982Plus: Normalized depr. & amort.1,449,361 1,644,621 1,737,259 1,906,273 2,502,654Normalized EBITDA973,569 1,120,139 1,266,711 1,289,091 1,110,8062,422,930 2,764,760 3,003,970 3,195,364 3,613,460Historic net change in cash (90,564) 6,225 4,071 9,139Plus: Net adjustments + Adj. to Depr., Amort. & Div.Normalized Net cash flow42,700 61,000 79,299 97,599(47,864) 67,225 83,370 106,738Historic income from operations 1,513,211 1,543,489 1,661,613 2,224,734Total operating adjustments 80,000 110,000 140,000 170,000Normalized operating income 1,593,211 1,653,489 1,801,613 2,394,734Less: Tax based on selected tax rate 541,692 562,186 612,548 814,210Plus: Normalized depr. & amort. from oper. (net of tax) 739,292 836,029 850,800 733,132Less: Normalized fixed asset purchases 929,999 930,000 2,180,000 929,999Less: Normalized changes in net working capital ** 539,080 953,640 548,660 572,830Normalized Free cash flowNormalized Net income321,732 43,692 (688,795) 810,827591,737 659,005 767,284 1,158,189Plus: Normalized depreciation & amortization 1,120,139 1,266,711 1,289,091 1,110,806Less: Normalized fixed asset purchases 929,999 930,000 2,180,000 929,999Less: Normalized changes in net working capital ** 539,080 953,640 548,660 572,830Plus: Changes in short-term notes payable (13,550) 485,030 (97,680) (107,890)Plus: Changes in current long-term notes payable 145,206 160,411 224,292 85,785Plus: Changes in long-term notes payable (256,220) (416,630) (420,884) (639,449)Less: Preferred DividendsFree Cash Flow available to Equity80,000 85,000 85,000 85,00038,233 185,887 (1,051,557) 19,612
  • 16. This sample Valuation was generated by American Fortune Mergers & Acquisitions, LLC505 Third Street, Suite 301, Louisville, KY 40202 www.fortunebta.com16Normalized Interim Financial StatementsInterim Financial Statements for 6 months dated June 2010 were available and included in this analysis. Thesestatements along with any adjustments are summarized below:Interim Income Statement & AdjustmentsInterim Normalization NormalizedJun 2010 AdjustmentsNet Sales RevenueJun 201018,924,689 0 18,924,689Total Cost of Goods Sold 13,731,824 0 13,731,824Total Selling Expenses 867,197 0 867,197Total General & Administrative Expenses 2,446,093 0Income From Operations2,446,0931,879,575 0Total Other Revenues and Expenses1,879,575(184,800) 0Income Before Taxes(184,800)1,694,775 0Total Income Taxes1,694,775275,592 0Net Income275,5921,419,183 0 1,419,183COMMENTS:
  • 17. This sample Valuation was generated by American Fortune Mergers & Acquisitions, LLC505 Third Street, Suite 301, Louisville, KY 40202 www.fortunebta.com17Interim Balance Sheet & Adjustments Interim Normalization NormalizedJun 2010 AdjustmentsASSETSJun 2010Total Current Assets 9,122,730 0 9,122,730Net Fixed Assets 4,554,828 0 4,554,828Total Long-Term Investments 1,640,341 0 1,640,341Net Intangible Assets 203,666 0 203,666Total Other Noncurrent Assets 790,000 0Total Assets790,00016,311,565 0 16,311,565LIABILITIES & STOCKHOLDERS EQUITYTotal Current Liabilities 3,303,998 0 3,303,998Total Long-Term Debt 3,855,277 0 3,855,277Total Other Long-Term Liabilities 50,000 0Total Liabilities50,0007,209,275 0Stockholders Equity:7,209,275Preferred stock 850,000 0 850,000Common stock 3,000,000 0 3,000,000Retained earnings 5,252,290 0Total Stockholders Equity5,252,2909,102,290 0Total Liabilities & Stockholders Equity9,102,29016,311,565 0 16,311,565COMMENTS:
  • 18. 14This sample Valuation was generated by American Fortune Mergers & Acquisitions, LLC505 Third Street, Suite 301, Louisville, KY 40202 www.fortunebta.comAnalysis of Historic Financial StatementsBusiness Common-Size Financial StatementsThis analysis includes a review of the Companys common-size income statement and balance sheet percentageson an unadjusted and a normalized basis. In order to portray the relative size of financial statement items forcomparison over time, each line item in the common-size income statements is expressed as a percentage of totalrevenue and each line item in the common-size balance sheets is expressed as a percentage of total assets. Asummary of the normalized common-size income statements and balance sheets is presented below.Unadjusted Business Common-Size Statements2005 2006 2007 2008 2009Income Data:Net sales 100.00% 100.00% 100.00% 100.00% 100.00%Gross profit 20.30% 18.17% 20.61% 21.48% 24.32%Operating expenses 14.97% 12.45% 15.11% 15.79% 17.27%Operating profit 5.33% 5.71% 5.50% 5.69% 7.05%All other expenses (net) 2.47% 2.31% 2.01% 1.83% 1.54%Profit Before Tax 2.87% 3.40% 3.50% 3.86% 5.51%Assets:Cash & equivalents 5.53% 5.95% 10.01% 12.74% 14.60%Trade receivables (net) 13.54% 13.59% 12.66% 13.98% 14.72%Inventory 13.51% 15.89% 17.11% 17.41% 18.13%All other current assets 0.91% 0.95% 0.93% 0.87% 0.92%Total Current Assets 33.49% 36.38% 40.71% 45.00% 48.38%Fixed assets (net) 34.75% 33.26% 29.53% 34.84% 34.55%Intangibles (net) 1.66% 1.58% 1.45% 1.37% 1.34%All other noncurrent assets 30.10% 28.78% 28.31% 18.79% 15.73%Total Noncurrent Assets 66.51% 63.62% 59.29% 55.00% 51.62%Total Assets 100.00% 100.00% 100.00% 100.00% 100.00%Liabilities & Net Worth:Notes payable short-term 1.27% 1.17% 4.20% 3.54% 2.92%Current maturity of long-term Debt 3.58% 4.53% 5.33% 6.67% 7.38%Trade payables 8.33% 8.32% 7.83% 8.37% 8.34%Income taxes payable 2.19% 2.25% 2.13% 2.45% 1.73%All other current liabilities 2.62% 2.62% 2.59% 2.88% 2.53%Total Current Liabilities 18.00% 18.89% 22.07% 23.91% 22.90%Long-term debt 40.48% 38.44% 33.89% 30.83% 27.43%Deferred taxes 0.00% 0.00% 0.00% 0.00% 0.00%All other noncurrent liabilities 0.18% 0.18% 0.17% 0.17% 0.17%Net worth 41.34% 42.50% 43.87% 45.10% 49.50%Total Liabilities & Net Worth 100.00% 100.00% 100.00% 100.00% 100.00%
  • 19. This sample Valuation was generated by American Fortune Mergers & Acquisitions, LLC505 Third Street, Suite 301, Louisville, KY 40202 www.fortunebta.com15Normalized Business Common-Size Statements2005 2006 2007 2008 2009Income Data:Net sales 100.00% 100.00% 100.00% 100.00% 100.00%Gross profit 20.30% 18.17% 20.61% 21.48% 24.32%Operating expenses 14.75% 12.15% 14.71% 15.31% 16.73%Operating profit 5.55% 6.01% 5.90% 6.17% 7.59%All other expenses (net) 2.50% 2.35% 2.04% 1.86% 1.57%Profit Before Tax 3.05% 3.66% 3.85% 4.30% 6.02%Assets:Cash & equivalents 5.55% 5.98% 10.06% 12.81% 14.70%Trade receivables (net) 13.60% 13.65% 12.73% 14.06% 14.82%Inventory 13.57% 15.96% 17.20% 17.51% 18.25%All other current assets 0.91% 0.95% 0.93% 0.88% 0.92%Total Current Assets 33.63% 36.55% 40.92% 45.25% 48.69%Fixed assets (net) 34.89% 33.42% 29.69% 35.04% 34.78%Intangibles (net) 1.67% 1.59% 1.45% 1.38% 1.35%All other noncurrent assets 29.81% 28.44% 27.94% 18.33% 15.18%Total Noncurrent Assets 66.37% 63.45% 59.08% 54.75% 51.31%Total Assets 100.00% 100.00% 100.00% 100.00% 100.00%Liabilities & Net Worth:Notes payable short-term 1.27% 1.17% 4.22% 3.56% 2.94%Current maturity of long-term Debt 3.60% 4.55% 5.35% 6.71% 7.43%Trade payables 8.37% 8.36% 7.87% 8.42% 8.39%Income taxes payable 2.20% 2.26% 2.14% 2.47% 1.74%All other current liabilities 2.63% 2.64% 2.60% 2.89% 2.55%Total Current Liabilities 18.07% 18.98% 22.19% 24.04% 23.05%Long-term debt 40.64% 38.62% 34.06% 31.00% 27.60%Deferred taxes 0.00% 0.00% 0.00% 0.00% 0.00%All other noncurrent liabilities 0.00% 0.00% 0.00% 0.00% 0.00%Net worth 41.29% 42.41% 43.75% 44.96% 49.34%Total Liabilities & Net Worth 100.00% 100.00% 100.00% 100.00% 100.00%COMMENTS:
  • 20. This sample Valuation was generated by American Fortune Mergers & Acquisitions, LLC505 Third Street, Suite 301, Louisville, KY 40202 www.fortunebta.com16Business vs. Industry Common-Size Financial StatementsSample Industries, Inc.s unadjusted and normalized common-size financial statements from the most recenthistoric year have been compared to composite, industry common-size financial statements from the Sporting andAthletic Goods Manufacturing industry. To compare the business and industry statements and measure thedifferences quantitatively, a variance from industry and 5 year average variance from industry have beencalculated for each line item.The source for the industry data used in both the common-size statement and financial ratio comparisons is RMAAnnual Statement Studies using NAICS Code number 339920. The industry data is categorized by Sales size of$10MM to $25MM. The date of this industry information is 2009 with 39 different companies contained in thesample.Although industry statistics are a useful source of general analytical data, there can be significant variation in thereporting practices and operational methods of companies within a given industry. Therefore, industry statisticsas used throughout this report should not be regarded as absolute norms or standards.
  • 21. This sample Valuation was generated by American Fortune Mergers & Acquisitions, LLC505 Third Street, Suite 301, Louisville, KY 40202 www.fortunebta.com17RMA - Unadjusted Business vs. IndustryCommon-Size Statements, Current YearBusiness2009Industry2009 Variance5 YrAverageVarianceIncome Data:Net sales 100.0000% 100.0%Gross profit 24.3208% 34.5% -29.50% -39.20%Operating expenses 17.2674% 28.8% -40.04% -47.51%Operating profit 7.0534% 5.7% 23.74% 2.77%All other expenses (net) 1.5410% 1.8% -14.39% 12.84%Profit Before Tax 5.5123% 3.9%Assets:Cash & equivalents 14.6034% 3.1% 371.08% 215.03%Trade receivables (net) 14.7230% 26.1% -43.59% -47.51%Inventory 18.1349% 42.6% -57.43% -61.48%All other current 0.9173% 3.4% -73.02% -73.11%Total Current Assets 48.3786% 75.2%Fixed assets (net) 34.5524% 13.9% 148.58% 140.20%Intangibles (net) 1.3422% 7.5% -82.10% -80.26%All other noncurrent 15.7268% 3.4% 362.55% 615.88%Total Noncurrent Assets 51.6214% 24.8%Total Assets 100.0000% 100.0%Liabilities:Notes payable short-term 2.9225% 17.9% -83.67% -85.37%Current maturity of long-term Debt 7.3819% 2.0% 269.09% 174.91%Trade payables 8.3401% 14.4% -42.08% -42.79%Income taxes payable 1.7259% 0.2% 762.94% 975.37%All other current liabilities 2.5344% 12.6% -79.89% -78.97%Total Current Liabilities 22.9047% 47.1%Long-term debt 27.4251% 8.9% 208.15% 284.38%Deferred taxes 0.0000% 0.3% -100.00% -100.00%All other noncurrent liabilities 0.1739% 3.9% -95.54% -95.49%Net worth 49.4963% 39.8% 24.36% 11.71%Total Liabilities & Net Worth 100.0000% 100.0%
  • 22. This sample Valuation was generated by American Fortune Mergers & Acquisitions, LLC505 Third Street, Suite 301, Louisville, KY 40202 www.fortunebta.com18RMA - Normalized Business vs. IndustryCommon-Size Statements, Current YearBusiness2009Industry2009 Variance5 YrAverageVarianceIncome Data:Net sales 100.0000% 100.0%Gross profit 24.3208% 34.5% -29.50% -39.20%Operating expenses 16.7284% 28.8% -41.92% -48.85%Operating profit 7.5923% 5.7% 33.20% 9.54%All other expenses (net) 1.5727% 1.8% -12.63% 14.83%Profit Before Tax 6.0196% 3.9%Assets:Cash & equivalents 14.6981% 3.1% 374.13% 216.77%Trade receivables (net) 14.8185% 26.1% -43.22% -47.23%Inventory 18.2525% 42.6% -57.15% -61.27%All other current 0.9233% 3.4% -72.85% -72.97%Total Current Assets 48.6922% 75.2%Fixed assets (net) 34.7764% 13.9% 150.19% 141.46%Intangibles (net) 1.3509% 7.5% -81.99% -80.16%All other noncurrent 15.1804% 3.4% 346.48% 604.14%Total Noncurrent Assets 51.3078% 24.8%Total Assets 100.0000% 100.0%Liabilities:Notes payable short-term 2.9414% 17.9% -83.57% -85.29%Current maturity of long-term Debt 7.4297% 2.0% 271.49% 176.40%Trade payables 8.3942% 14.4% -41.71% -42.50%Income taxes payable 1.7371% 0.2% 768.53% 980.93%All other current liabilities 2.5508% 12.6% -79.76% -78.87%Total Current Liabilities 23.0532% 47.1%Long-term debt 27.6029% 8.9% 210.15% 286.34%Deferred taxes 0.0000% 0.3% -100.00% -100.00%All other noncurrent liabilities 0.0000% 3.9% -100.00% -100.00%Net worth 49.3439% 39.8% 23.98% 11.43%Total Liabilities & Net Worth 100.0000% 100.0%COMMENTS:
  • 23. This sample Valuation was generated by American Fortune Mergers & Acquisitions, LLC505 Third Street, Suite 301, Louisville, KY 40202 www.fortunebta.com19Business Financial Ratio AnalysisAs part of the valuation, various financial ratios have been calculated from each years unadjusted and normalizedfinancial statements as presented in this report. These ratios measure Sample Industries, Inc.s liquidity positions,coverage capacity, leverage/capitalization, operating efficiency and equity performance.Unadjusted Business Financial Ratios:2005 2006 2007 2008 2009Liquidity Ratios:Current 1.86 1.93 1.84 1.88 2.11Quick 1.06 1.03 1.03 1.12 1.28Accounts receivable turnover 12.62 13.07 14.11 13.16 13.80Days receivable 28.52 27.55 25.51 27.36 26.08Inventory turnover 10.08 9.15 8.29 8.30 8.48Days inventory 35.70 39.35 43.42 43.38 42.45Accounts payable turnover 16.35 17.47 18.12 17.26 18.44Days payable 22.01 20.60 19.86 20.86 19.52Working capital turnover 11.04 10.15 9.59 8.72 7.98Inventory as a % of Total current assets 40.35% 43.67% 42.03% 38.68% 37.49%Total current assets as a % of Total assets 33.49% 36.38% 40.71% 45.00% 48.38%Coverage Ratios:Times interest earned 2.07 2.33 2.49 2.74 3.88Current portion of long-term debt coverage 2.67 2.47 2.23 1.87 1.89Principal & Interest coverage 2.07 1.79 5.81 1.57 1.39Preferred dividend coverage 5.54 6.86 7.04 8.09 12.48Leverage/Capitalization Ratios:Fixed assets to Tangible net worth 0.88 0.81 0.70 0.80 0.72Total debt to Tangible net worth 1.48 1.41 1.32 1.26 1.05Short-term debt to Total debt 30.68% 32.84% 39.33% 43.55% 45.35%Short-term debt to Net worth 43.54% 44.44% 50.32% 53.01% 46.28%Total debt to Total assets 58.66% 57.50% 56.13% 54.90% 50.50%Operating Ratios:Percent return on Tangible net worth 12.36% 14.75% 14.73% 16.24% 23.26%Percent return on Total assets 4.91% 6.03% 6.25% 7.10% 11.20%Net sales to Net fixed assets 4.92 5.34 6.05 5.28 5.88Net sales to Total assets 1.71 1.78 1.79 1.84 2.03Percent Depr., Amort. to Net sales 3.85% 4.23% 4.52% 4.41% 3.52%Percent Officer salaries to Net sales 1.38% 1.51% 1.60% 1.71% 1.74%Fixed asset turnover 5.00 5.45 6.14 5.36 6.03Total sales to Net worth 4.21 4.26 4.13 4.14 4.21Percent Operating cost 47.89% 47.59% 47.66% 47.29% 46.46%Percent Net profit 1.75% 2.07% 2.13% 2.35% 3.36%Revenue growth percentage 5.01% 5.26% 4.40% 8.89%Equity Ratios:Net book value per share of Preferred stock 5.87 6.10 6.66 6.95 7.47Net book value per share of Common stock 0.63 0.66 0.73 0.76 0.83Percent earnings payout 62.69% 52.68% 46.63% 53.63% 46.75%Percent earnings retention 37.31% 47.32% 53.37% 46.37% 53.25%Dividends per Common share 0.03 0.03 0.03 0.04 0.06
  • 24. This sample Valuation was generated by American Fortune Mergers & Acquisitions, LLC505 Third Street, Suite 301, Louisville, KY 40202 www.fortunebta.com20Normalized Business Financial Ratios:2005 2006 2007 2008 2009Liquidity Ratios:Current 1.86 1.93 1.84 1.88 2.11Quick 1.06 1.03 1.03 1.12 1.28Accounts receivable turnover 12.62 13.07 14.11 13.16 13.80Days receivable 28.52 27.55 25.51 27.36 26.08Inventory turnover 10.08 9.15 8.29 8.30 8.48Days inventory 35.70 39.35 43.42 43.38 42.45Accounts payable turnover 16.35 17.47 18.12 17.26 18.44Days payable 22.01 20.60 19.86 20.86 19.52Working capital turnover 11.04 10.15 9.59 8.72 7.98Inventory as a % of Total current assets 40.35% 43.67% 42.03% 38.68% 37.49%Total current assets as a % of Total assets 33.63% 36.55% 40.92% 45.25% 48.69%Coverage Ratios:Times interest earned 2.14 2.44 2.64 2.94 4.14Current portion of long-term debt coverage 2.72 2.53 2.30 1.94 1.98Principal & Interest coverage 2.14 1.87 6.16 1.69 1.48Preferred dividend coverage 5.88 7.40 7.75 9.03 13.63Leverage/Capitalization Ratios:Fixed assets to Tangible net worth 0.88 0.82 0.70 0.80 0.72Total debt to Tangible net worth 1.48 1.41 1.33 1.26 1.06Short-term debt to Total debt 30.78% 32.95% 39.45% 43.68% 45.51%Short-term debt to Net worth 43.77% 44.74% 50.71% 53.48% 46.72%Total debt to Total assets 58.71% 57.59% 56.25% 55.04% 50.66%Operating Ratios:Percent return on Tangible net worth 13.20% 16.01% 16.36% 18.27% 25.65%Percent return on Total assets 5.23% 6.53% 6.92% 7.96% 12.31%Net sales to Net fixed assets 4.92 5.34 6.05 5.28 5.88Net sales to Total assets 1.72 1.78 1.80 1.85 2.05Percent Depr., Amort. to Net sales 3.85% 4.23% 4.52% 4.41% 3.52%Percent Officer salaries to Net sales 1.19% 1.23% 1.25% 1.28% 1.27%Fixed asset turnover 5.00 5.45 6.14 5.36 6.03Total sales to Net worth 4.23 4.29 4.16 4.18 4.25Percent Operating cost 47.83% 47.51% 47.55% 47.16% 46.30%Percent Net profit 1.86% 2.23% 2.35% 2.63% 3.67%Revenue growth percentage 5.01% 5.26% 4.40% 8.89%Equity Ratios:Total net assets per share of Preferred stock 5.84 6.06 6.60 6.88 7.40Net book value per share of Common stock 0.63 0.66 0.72 0.75 0.82Percent earnings payout 58.28% 48.28% 41.67% 47.39% 42.50%Percent earnings retention 41.72% 51.72% 58.33% 52.61% 57.50%Dividends per Common share 0.03 0.03 0.03 0.04 0.06
  • 25. This sample Valuation was generated by American Fortune Mergers & Acquisitions, LLC505 Third Street, Suite 301, Louisville, KY 40202 www.fortunebta.com21Financial Ratios Notes and Discussion of Trends:1. Liquidity ratios measure the short-term ability of a company to meet its maturing obligations.2. Coverage ratios measure the degree of protection for long-term creditors and investors and the margin bywhich certain obligations of a company can be met.3. Leverage/capitalization ratios measure the amount of a companys operations that are financed from debtversus financed from equity.4. Operating ratios measure the efficiency and productivity of a company using the resources that are availableand the returns on sales and investments.5. Equity ratios measure the performance of assets and earnings in relation to common and preferred equity.COMMENTS:
  • 26. This sample Valuation was generated by American Fortune Mergers & Acquisitions, LLC505 Third Street, Suite 301, Louisville, KY 40202 www.fortunebta.com22Business vs. Industry Financial Ratio ComparisonSample Industries, Inc.s financial ratios calculated from the most recent, unadjusted and normalized financialstatements have been compared to composite, industry financial ratios using the same source of industry data aspresented in the Business vs. Industry Common-Size Financial Statement Comparison. To compare the businessand industry ratios and measure the differences quantitatively, a variance from industry and 5 year averagevariance from industry have been calculated for each ratio.Again, it should be noted that although industry statistics are a useful source of general analytical data, there can besignificant variations in the reporting practices and operational methods of companies within a given industry.Therefore, industry statistics as used throughout this report should not be regarded as absolute norms or standards.RMA - Unadjusted Business vs. Industry Ratios,Current YearLiquidity Ratios:Business Industry 5 Yr Average2009 2009 Variance VarianceCurrent ratio 2.1122 1.8 17.34% 6.95%Quick ratio 1.2804 0.7 82.91% 57.69%Accounts receivable turnover 13.8013 7.6 81.60% 75.69%Inventory turnover 8.4797 3.6 135.55% 146.11%Accounts payable turnover 18.4384 13.9 32.65% 26.11%Working capital turnover 7.9767 8.2 -2.72% 15.80%Coverage Ratios:Times interest earned 3.8787 3.0 29.29% -9.90%Current portion of long-term debt coverage ratio 1.8950 1.8 5.28% 23.71%Leverage/Capitalization Ratios:Fixed assets to Tangible net worth 0.7175 0.4 79.38% 94.97%Total debt to Tangible net worth 1.0488 1.7 -38.31% -23.40%Operating Ratios:Percent return on Tangible net worth 23.2606% 12.4% 87.59% 31.18%Percent return on Total assets 11.2009% 4.2% 166.69% 68.98%Net sales to Net fixed assets 5.8808 19.3 -69.53% -71.53%Net sales to Total assets 2.0320 1.9 6.95% -3.75%Percent Depr. Amort. to Net sales 3.5217% 1.3% 170.90% 215.78%Percent Officer salaries to Net sales 1.7437% 0.0% 0.00% 0.00%
  • 27. This sample Valuation was generated by American Fortune Mergers & Acquisitions, LLC505 Third Street, Suite 301, Louisville, KY 40202 www.fortunebta.com23RMA - Normalized Business vs. Industry Ratios,Current YearLiquidity Ratios:Business Industry 5 Yr Average2009 2009 Variance VarianceCurrent ratio 2.1122 1.8 17.34% 6.95%Quick ratio 1.2804 0.7 82.91% 57.69%Accounts receivable turnover 13.8013 7.6 81.60% 75.69%Inventory turnover 8.4797 3.6 135.55% 146.11%Accounts payable turnover 18.4384 13.9 32.65% 26.11%Working capital turnover 7.9767 8.2 -2.72% 15.80%Coverage Ratios:Times interest earned 4.1436 3.0 38.12% -4.65%Current portion of long-term debt coverage ratio 1.9802 1.8 10.01% 27.58%Leverage/Capitalization Ratios:Fixed assets to Tangible net worth 0.7246 0.4 81.15% 96.50%Total debt to Tangible net worth 1.0555 1.7 -37.91% -23.04%Operating Ratios:Percent return on Tangible net worth 25.6516% 12.4% 106.87% 44.34%Percent return on Total assets 12.3110% 4.2% 193.12% 85.51%Net sales to Net fixed assets 5.8808 19.3 -69.53% -71.53%Net sales to Total assets 2.0451 1.9 7.64% -3.24%Percent Depr., Amort. to Net sales 3.5217% 1.3% 170.90% 215.78%Percent Officer salaries to Net sales 1.2682% 0.0% 0.00% 0.00%COMMENTS:
  • 28. This sample Valuation was generated by American Fortune Mergers & Acquisitions, LLC505 Third Street, Suite 301, Louisville, KY 40202 www.fortunebta.com24Valuation of Sample Industries, Inc.The objective of this valuation is to estimate the Fair Market Value of 100.00% of the common stock ofSample Industries, Inc. as of June 30, 2010 for the purpose as set forth in this Valuation Report.The standard of value used in our valuation of Sample Industries, Inc. is Fair Market Value. Fair MarketValue is the price, in terms of cash or equivalent, that a buyer could reasonably be expected to pay, and aseller could reasonably be expected to accept, if the business were exposed for sale on the open market fora reasonable period of time, with both buyer and seller being in possession of the pertinent facts andneither being under any compulsion to act.There is a large number of factors to consider when estimating the common stock value of any businessentity. These factors vary for each valuation depending on the unique circumstances of the businessenterprise and general economic conditions that exist at the effective date of the valuation. However,fundamental guidelines of the factors to consider in any valuation have been established. The mostcommonly used valuation guidelines are derived from the Internal Revenue Services Revenue Ruling 59-60. Revenue Ruling 59-60 states that in the valuation of the stock of closely held businesses, thefollowing factors, although not all inclusive, are fundamental and require careful consideration in eachcase:The nature of the business and the history of the enterprise from its inception.The economic outlook in general and the condition and outlook of the specific industry inparticular.The book value of the stock and the financial condition of the business.The earning capacity of the company.The dividend-paying capacity.Whether or not the enterprise has goodwill or other intangible value.Sales of the stock and the size of the block of stock to be valued.The market price of stocks of corporations engaged in the same or a similar line of businesshaving their stocks actively traded in a free and open market, either on an exchange or over-the-counter.Based on circumstances unique to Sample Industries, Inc. as of June 30, 2010, additional factors havebeen considered.COMMENTS:In addition to providing general valuation guidelines, Revenue Ruling 59-60 outlines other considerationsand techniques for valuing the stock of closely held businesses. The techniques are commonly divided intogeneral approaches, i.e., the Asset, Income, Market, and Other approaches. Specific methods arethen used to estimate the value of the total business entity under each approach. Our conclusion of FairMarket Value is determined based on the results of these methods and the specific circumstancessurrounding the interest being valued.
  • 29. This sample Valuation was generated by American Fortune Mergers & Acquisitions, LLC505 Third Street, Suite 301, Louisville, KY 40202 www.fortunebta.com25Overview of Valuation Approaches and MethodsAs previously specified, various approaches have been used to value Sample Industries, Inc.. Theseapproaches, described below, are the: 1) Asset Approach, 2) Income Approach, 3) Market Approach, and4) Other.The Asset Approach is generally considered to yield the minimum benchmark of value for an operatingenterprise. The most common methods within this approach are Net Asset Value and Liquidation Value.Net Asset Value represents net equity of the business after assets and liabilities have been adjusted to theirfair market values. The Liquidation Value of the business represents the present value of the estimatednet proceeds from liquidating the Companys assets and paying off its liabilities.The Income Approach serves to estimate value by considering the income (benefits) generated by the assetover a period of time. This approach is based on the fundamental valuation principle that the value of abusiness is equal to the present worth of the future benefits of ownership. The term income does notnecessarily refer to income in the accounting sense but to future benefits accruing to the owner. The mostcommon methods under this approach are Capitalization of Earnings and Discounted Future Earnings.Under the Capitalization of Earnings method, normalized historic earnings are capitalized at a rate thatreflects the risk inherent in the expected future growth in those earnings. The Discounted Future Earningsmethod discounts projected future earnings back to present value at a rate that reflects the risk inherent inthe projected earnings.The Market Approach compares the subject company to the prices of similar companies operating in thesame industry that are either publicly traded or, if privately-owned, have been sold recently. A commonproblem for privately owned businesses is a lack of publicly available comparable data.The Other methods consist of valuation methods that cannot be classified into one of the previouslydiscussed approaches. The methods utilized in the Other Approach are Capitalization of Excess Earningsand Multiple of Discretionary Earnings. Commonly referred to as the “formula method,” theCapitalization of Excess Earnings method determines the value of tangible and intangible assets separatelyand combines these component values for an indication of total entity value. Under the Multiple ofDiscretionary Earnings method, the entity is valued based on a multiple of “discretionary earnings,” i.e.,earnings available to the owner who is also a manager. Both of these methods are normally used to valuesmall businesses and professional practices.The methods utilized under each approach are presented and discussed in the following sections.COMMENTS:
  • 30. 26This sample Valuation was generated by American Fortune Mergers & Acquisitions, LLC505 Third Street, Suite 301, Louisville, KY 40202 www.fortunebta.comPreferred Stock ValuationThe value of Sample Industries, Inc.s preferred stock based on market yields for comparable preferredstocks is estimated to be $1,200,000. In the preferred stock valuation, Sample Industries, Inc.s preferreddividends are divided by the market yield on comparable preferred stocks to determine Total Entity Valueas shown below.Book2009 MarketPer Share Analysis:Preferred stock dividends 85,000 85,000Preferred stock shares 1,000,000 1,000,000Dividends per share 0.09 0.09Valuation Analysis:Preferred stock dividends 85,000 85,000Yield on preferred stock 10.00% 7.00%Preferred stock value 850,000 1,214,286Selected fair market value of preferred stock 1,200,000
  • 31. This sample Valuation was generated by American Fortune Mergers & Acquisitions, LLC505 Third Street, Suite 301, Louisville, KY 40202 www.fortunebta.comNet Asset ValueThe Net Asset Value of Sample Industries, Inc. is estimated to be $13,304,898. The Net Asset Valuemethod assumes that the value of a business will be realized by the hypothetical sale of its net assets aspart of a going concern. In our analysis, assets and liabilities from the most recent historic, unadjustedbalance sheet have been adjusted to their individual tax bases. Assets and liabilities were further adjustedto their individual appraised values. A tax adjustment in the amount of $2,686,969 was then estimatedbased on the difference between the appraised value and the tax basis of assets and liabilities using aneffective tax rate of 39.00%. The net result is the total entity value.Liquidation ValueThe Liquidation Value of Sample Industries, Inc. is estimated to be $9,413,963. Liquidation Value isdefined as the present value of the net cash remaining if all assets are sold in a quick and orderly,piecemeal sale and all liabilities are paid at face value with the proceeds. In our analysis, the appraisedvalue of individual assets and liabilities have been adjusted to reflect the value that could be obtained in aquick and orderly liquidation. A tax adjustment in the amount of $199,270 was then estimated based onthe difference between the appraised value and the tax basis of assets and liabilities using an effective taxrate of 39.00%. In addition, estimated liquidation costs in the amount of $273,802 have been deducted.The net result is the total entity value. See the Liquidation Value schedule for detailed value calculationsand the Estimated Liquidation Cost schedule for the calculation of estimated liquidation costs.
  • 32. This sample Valuation was generated by American Fortune Mergers & Acquisitions, LLC505 Third Street, Suite 301, Louisville, KY 40202 www.fortunebta.comDiscount & Capitalization Rate EstimatesFor purposes of this analysis, various risk rates applicable to historic and projected earnings have beenestimated. Generally stated, these risk-adjusted rates reflect the expected rate of return attainable onalternative investment opportunities with comparable risk.First, a Discount Rate applicable to the Discounted Future Earnings valuation method has been calculated.This Discount Rate is then converted into a Capitalization Rate for use in the Capitalization of Earningsvaluation method. These calculations are summarized in the table below.Build-Up Model, Risk Factors:Risk-Free Rate 5.00%Market Equity Risk Premium 20.00%Size PremiumDiscount Rate7.00%32.00%Less: Long-term growth in EBT 19.62%Capitalization Rate 12.38%Divided by: 1 + Long-term growth in EBT 119.62%Historic Earnings Capitalization Rate 10.35%Historic Excess Earnings Capitalization Rate 15.35%In developing the Discount and Capitalization Rates to apply to the benefit stream of Sample Industries,Inc., the Build-Up Model was used. The Build-Up Model is based on a combination of risk factorsincluding a Risk-Free Rate, a Market Equity Risk Premium, a Size Premium and other identifiable riskfactors specific to the subject company. When added together, these risk factors provide an indication ofthe Discount Rate for the subject company. This Discount Rate represents the total return, in terms of cashflows and appreciation in value that an investor would require in order to make an equity investment in thesubject company.COMMENT: Provide an explanation of each of the risk factors identified in the Build-Up Method anddocument the source of the data. The Long-Term U.S. Treasury Bond yield to maturity prevailing on thedate of (or within the week of) the effective date of the valuation is commonly used to represent the Risk-Free Rate. The Market Equity Risk Premium is the return in excess of the Risk-Free Rate that an averageequity investor would require. The Size Premium is generally used if the subject company is significantlysmaller than the companies used in the formulation of the Market Equity Risk Premium. Document allother incremental risk factors identified in the development of the discount rate. Please note that theBuild-Up Model is normally used for small companies or if no valid comparable company data isavailable. If no valid comparable company data is available, that fact should be disclosed here.
  • 33. This sample Valuation was generated by American Fortune Mergers & Acquisitions, LLC505 Third Street, Suite 301, Louisville, KY 40202 www.fortunebta.comCapitalization of EarningsThe Capitalization of Earnings method arrives at an estimate of value by dividing current normalizedoperations, which are weighted and averaged to approximate future earnings expectations, by acapitalization rate. As shown below, The Total Entity Value of Sample Industries, Inc. based on theCapitalization of Earnings method is estimated to be $16,515,764. In the Capitalization of Earningsmethod, weighted average, normalized EBT is divided by the capitalization rate, 10.35%, to determineTotal Entity Value. See the Income Statement Adjustments section for a listing of any adjustments madeto historic earnings and the Discount & Capitalization Rates section for the capitalization rate calculations.Capitalization of Earnings Normalized Weighting WeightedEBT FactorFiscal Year End 2005Earnings770,927 1.0 770,927Fiscal Year End 2006 970,061 2.0 1,940,122Fiscal Year End 2007 1,080,336 3.0 3,241,008Fiscal Year End 2008 1,257,844 4.0 5,031,376Fiscal Year End 2009 1,898,672 5.0 9,493,360Annualized 2010 2,551,924 6.0Sum of Weighted earnings15,311,54435,788,337Divided by: Sum of weighting factorsWeighted average earnings21.01,704,207Divided by: Historic capitalization rateOperating value10.35%16,465,764Plus: Net nonoperating assetsTotal entity value50,00016,515,764Net nonoperating assets in the amount of $50,000 have been added in the determination of Total EntityValue under this method because net nonoperating assets do not contribute to the earnings capacity of thebusiness. See the Net Asset Value schedule for the presentation of net nonoperating assets.
  • 34. This sample Valuation was generated by American Fortune Mergers & Acquisitions, LLC505 Third Street, Suite 301, Louisville, KY 40202 www.fortunebta.comDiscounted Future EarningsThe underlying premise for this valuation method is the basic valuation principle that an investment in abusiness is worth the present value of all the future benefits it will produce for its owner(s), with eachexpected future benefit discounted back to present value at a discount rate that reflects the risk (degree ofuncertainty) that those benefits may not be realized. Therefore, the application of this method requires adetermination of the present value of an expected future income stream that the business generates for thatowner.To determine the expected future income stream, we assisted management in preparing managementsprojections of the financial statements for the first 5 years after the valuation date. An overallsummary of the projections is presented below, followed by the individual statements in condensedformat. (See the Projection Assumptions and Projection schedules for complete details.)Projection SummaryNet sales revenue2010 2011 2012 2013 201433,029,158 34,605,870 36,277,151 38,049,272 39,928,935Gross profit 8,786,958 9,013,109 9,924,264 10,471,079 10,954,328EBITDA 4,816,427 5,091,663 5,234,499 5,524,740 5,853,442EBIT 3,134,636 3,389,456 4,119,426 4,374,930 4,585,538EBT 2,551,925 2,737,234 3,592,857 4,008,691 4,346,829Net income 1,600,057 1,716,245 2,252,721 2,513,449 2,725,462Annualized Net cash flow 1,854,383 (655,071) 15,088 425,585 392,914Total current assets 9,864,523 9,069,023 8,727,707 8,601,179 9,529,292Net fixed assets 3,690,518 5,747,645 6,067,620 6,090,000 5,931,429Net other assets 2,492,913 2,435,195 2,376,085 2,315,253 2,285,557Total assets 16,047,955 17,251,863 17,171,412 17,006,432 17,746,277Total current liabilities 4,364,282 4,790,572 5,008,326 4,293,206 4,286,752Total long-term debt 3,285,537 3,290,033 1,950,466 1,328,883 797,450Total liabilities 7,649,819 8,080,605 6,958,792 5,622,089 5,084,202Total Equity 8,398,136 9,171,258 10,212,619 11,384,344 12,662,075Net working capital 5,500,241 4,278,452 3,719,381 4,307,974 5,242,539Federal Income tax before NOL adjustment 824,272 884,126 1,160,493 1,294,807 1,404,026Plus: NOL tax adjustment 0 0 0 0 0Federal Income Tax Expense 824,272 884,126 1,160,493 1,294,807 1,404,026Income from operations 2,886,448 3,262,294 4,057,707 4,319,194 4,481,356Less: Tax based on selected tax rate 981,392 1,109,180 1,379,620 1,468,526 1,523,661Plus: Depr. & Amort. from operations 1,681,791 1,702,207 1,115,073 1,149,810 1,267,905Less: Annualized Fixed asset purchases (447) 3,750,000 1,500,000 1,200,000 1,100,000Less: Annualized Changes in Net Working capital ** (461,889) (243,672) (443,677) (682,719) 387,927Free Cash Flow 4,049,183 348,993 2,736,837 3,483,196 2,737,673
  • 35. This sample Valuation was generated by American Fortune Mergers & Acquisitions, LLC505 Third Street, Suite 301, Louisville, KY 40202 www.fortunebta.comSummary Income Statement Projections2010 2011 2012 2013 2014Net Sales Revenue 33,029,158 34,605,870 36,277,151 38,049,272 39,928,935Total Cost of Goods SoldGross Profit24,242,201 25,592,762 26,352,887 27,578,193 28,974,607Total Selling Expenses8,786,958 9,013,109 9,924,264 10,471,079 10,954,3281,486,312 1,557,264 1,632,472 1,712,217 1,796,802Total General & Administrative ExpensesIncome From Operations4,414,198 4,193,551 4,234,085 4,439,668 4,676,170Total Other Revenues and Expenses2,886,448 3,262,294 4,057,707 4,319,194 4,481,356Income Before Taxes(334,523) (525,060) (464,850) (310,503) (134,527)Total Income Taxes2,551,925 2,737,234 3,592,857 4,008,691 4,346,829Net Income951,868 1,020,988 1,340,136 1,495,242 1,621,3671,600,057 1,716,245 2,252,721 2,513,449 2,725,462Summary Balance Sheet Projections2010 2011 2012 2013 2014ASSETSTotal Current Assets 9,864,523 9,069,023 8,727,707 8,601,179 9,529,292Net Fixed Assets 3,690,518 5,747,645 6,067,620 6,090,000 5,931,429Total Long-Term Investments 1,628,914 1,604,279 1,577,064 1,547,000 1,547,000Net Intangible Assets 198,999 189,666 180,333 171,000 161,666Total Other Noncurrent AssetsLIABILITIES & STOCKHOLDERS665,000 641,250 618,688 597,253 576,890Total Assets 16,047,955 17,251,863 17,171,412 17,006,432 17,746,277EQUITYTotal Current Liabilities 4,364,282 4,790,572 5,008,326 4,293,206 4,286,752Total Long-Term Debt 3,285,537 3,290,033 1,950,466 1,328,883 797,450Total Other Long-Term Liabilities 0 0 0 0 0Total LiabilitiesStockholders Equity:7,649,819 8,080,605 6,958,792 5,622,089 5,084,202Preferred stock 850,000 850,000 850,000 850,000 850,000Common stock 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000Retained earningsTotal Stockholders Equity4,548,136 5,321,258 6,362,619 7,534,344 8,812,075Total Liabilities & Stockholders Equity8,398,136 9,171,258 10,212,619 11,384,344 12,662,07516,047,955 17,251,863 17,171,411 17,006,432 17,746,277
  • 36. This sample Valuation was generated by American Fortune Mergers & Acquisitions, LLC505 Third Street, Suite 301, Louisville, KY 40202 www.fortunebta.comSummary Retained Earnings Projections2010 2011 2012 2013 2014Retained Earnings Beginning of Period 5,252,290 4,548,136 5,321,258 6,362,619 7,534,344Additions:Normalized net income for the year 180,874 1,716,245 2,252,721 2,513,449 2,725,462Deductions:Normalized preferred dividends 85,000 85,000 85,000 85,000 85,000Normalized Common dividendsRetained Earnings End of Period 4,548,136 5,321,258 6,362,619 7,534,344 8,812,075Summary Cash Flow Projections800,029 858,123 1,126,361 1,256,725 1,362,731Net Cash Flow From Financing2010 2011 2012 2013 2014Net Cash Flow From Operations 2,606,472 3,688,210 3,871,899 4,368,404 3,556,738Net Cash Flow From Investments 50,000 (3,750,000) (1,461,000) (1,161,000) (1,061,000)Net Cash Flow(1,451,162) (593,281) (2,395,811) (2,781,819) (2,102,824)Cash at Beginning of Period1,205,310 (655,071) 15,088 425,585 392,914Cash at End of Period891,887 2,097,197 1,442,126 1,457,214 1,882,7992,097,197 1,442,126 1,457,214 1,882,799 2,275,714Summary Sources & Uses of Funds Projections2010 2011 2012 2013 2014Total Internally Generated Cash 736,048 (1,072,368) 1,151,193 1,777,438 946,864Total Cash from External FinancingNet Cash Flow 1,205,310 (655,071) 15,088 425,585 392,914Overview of Projection AssumptionsIn preparing the preceding financial statement projections, management made various assumptions aboutexpected future revenues, expenses, assets, liabilities and equity. These assumptions were made aftergathering and analyzing data that affects the future economic outlook of the Company. This data wasderived from sources such as the normalized financial statements, publicly available information andother economic materials.This section of the report provides a broad overview of the Projection Assumptions and has been preparedto emphasize items considered significant to the overall understanding of the projections.Revenue & Expense AssumptionsNet Sales Revenues over the past 5 historic years have grown at a compound average annual rate of469,262 417,297 (1,136,105) (1,351,853) (553,950)5.66%. Future Net Sales Revenues are projected to grow at an estimated, compound average annual rate
  • 37. This sample Valuation was generated by American Fortune Mergers & Acquisitions, LLC505 Third Street, Suite 301, Louisville, KY 40202 www.fortunebta.comof 4.83%, starting from a base amount of $31,541,420 and growing to $33,029,158 in the first projectedyear and $39,928,935 in projected year 5.Total Cost of Goods Sold over the past 5 historic years has averaged 79.02% of Net Sales Revenues foreach respective year and was 75.68% of Net Sales Revenues in the most recent historic fiscal year, 2009.Total Cost of Goods Sold has been projected to be $24,242,201, or 73.40% of Net Sales Revenues in thefirst projected year and $28,974,607, or 72.57% of Net Sales Revenues in projected year 5. On average,Total Cost of Goods Sold has been projected to be 73.01% of each years respective Net Sales Revenues.Total Selling Expenses over the past 5 historic years have averaged 3.38% of Net Sales Revenues foreach respective year and were 4.18% of Net Sales Revenues in the most recent historic fiscal year, 2009.Total Selling Expenses have been projected to be $1,486,312, or 4.50% of Net Sales Revenues in the firstprojected year and $1,796,802, or 4.50% of Net Sales Revenues in projected year 5. On average, TotalSelling Expenses have been projected to be 4.50% of each years respective Net Sales Revenues.Total General & Administrative Expenses over the past 5 historic years have grown at a compoundaverage annual rate of 7.34%. Total General & Administrative Expenses are projected to grow at anestimated, compound average annual rate of 1.78%, starting from a base amount of $4,281,111 andgrowing to $4,414,198 in the first projected year and $4,676,170 in projected year 5.Cash Equivalents have been projected using the Manual Input method. Annual interest income isprojected to be earned at the rate of 5.0% of the projected account balance in each projected year.Fixed Asset Depreciation AssumptionsDepreciation Expense and Accumulated Depreciation on fixed assets have been estimated over theterm of the projected financial statements.Projected depreciation on existing fixed assets and any fixed asset purchases is based on the termspresented in the following table.Book Original Salvage DepreciationFixed Asset Accounts Value Life (years) (% of Cost ) MethodPlant 1,373,810 15 0.0% Straight LineEquipment 1,069,124 7 0.0% Straight LineVehicles 638,464 5 0.0% Straight LineFurniture and fixtures 473,430 7 0.0% Straight LineLand 1,000,000 0 0.0% Straight LineDisposals of Existing Fixed AssetsFixed Asset Disposals and any related Gain / (Loss) on Sale of Fixed Assets have been estimated forexisting fixed assets over the term of the projected financial statements. The projected Fixed AssetDisposal assumptions are presented in the following table.Aggregate Aggregate Start Spread Average AgeEquipment 20.0% 15.0% 3 3 2Fixed Asset Accounts Disposals Proceeds Year Over of Disposals
  • 38. This sample Valuation was generated by American Fortune Mergers & Acquisitions, LLC505 Third Street, Suite 301, Louisville, KY 40202 www.fortunebta.comFixed Asset PurchasesAfter estimating projected depreciation on existing fixed assets and estimating disposals of existing fixedassets, it has been assumed that the Company would be required to purchase new fixed assets in order toprovide the capacity to support projected sales revenues. Therefore, in an attempt to maintain a minimumFixed Asset Turnover Ratio of approximately 0.00 in each projected year, the following fixed assetpurchases are assumed to be made.Please note that all Fixed Asset Purchases are assumed to be depreciated based on the terms specified inthe Fixed Asset Depreciation Assumptions table.2010 2011 2012 2013 2014Plant 0 0 250,000 250,000 250,000Equipment 0 0 500,000 350,000 350,000Vehicles 0 0 500,000 400,000 300,000Furniture and fixtures 0 0 250,000 200,000 200,000LandTotal Fixed Asset Purchases 00 0 0 0 03,750,000 1,500,000 1,200,000 1,100,000Existing Notes Receivable AssumptionsNote receivable in the amount of $114,558 with an interest rate of 10.0% has 54 monthly installmentpayments remaining. The installments consist of equal payments where the principal and interest portionsof the payment vary with each installment.Amortization of Intangible AssetsGoodwill is assumed to be amortized to Amortization Expense over a period of 30 projected years.Intangibles are assumed to be amortized to Amortization Expense over a period of 15 projected years.Existing Notes Payable AssumptionsShort-term note payable - bank in the amount of $114,558 with an interest rate of 10.0% has 54 monthlyinstallment payments remaining. The installments consist of equal payments where the principal andinterest portions of the payment vary with each installment.Short-term note payable - related party in the amount of $280,964 with an interest rate of 10.0% has 30monthly installment payments remaining. The installments consist of equal payments where the principaland interest portions of the payment vary with each installment.Long-term note payable - ABC Bank in the amount of $2,974,214 with an interest rate of 12.0% has 42monthly installment payments remaining. The installments consist of equal payments where the principaland interest portions of the payment vary with each installment.Long-term note payable - ACME Bank in the amount of $921,087 with an interest rate of 12.0% has 78
  • 39. This sample Valuation was generated by American Fortune Mergers & Acquisitions, LLC505 Third Street, Suite 301, Louisville, KY 40202 www.fortunebta.commonthly installment payments remaining. The installments consist of equal principal payments withmonthly interest charged on the outstanding balance.Long-term note payable - First Nat. Bank in the amount of $1,017,149 with an interest rate of 10.0% has54 monthly installment payments remaining. The installments consist of equal payments where theprincipal and interest portions of the payment vary with each installment.Fixed Asset Purchase Financing AssumptionsIn projected year 3, 40.0% of total fixed asset purchases $1,500,000 would be financed. A new loan in theamount of $600,000 would be added in that year. This loan would have an interest rate of 10.0% andwould be repaid in 60 monthly installments. The installments consist of equal payments where theprincipal and interest portions of the payment vary with each installment.In projected year 4, 40.0% of total fixed asset purchases $1,200,000 would be financed. A new loan in theamount of $480,000 would be added in that year. This loan would have an interest rate of 10.0% andwould be repaid in 60 monthly installments. The installments consist of equal payments where theprincipal and interest portions of the payment vary with each installment.In projected year 5, 40.0% of total fixed asset purchases $1,100,000 would be financed. A new loan in theamount of $440,000 would be added in that year. This loan would have an interest rate of 10.0% andwould be repaid in 60 monthly installments. The installments consist of equal payments where theprincipal and interest portions of the payment vary with each installment.Dividends AssumptionsPreferred Stock Dividends are assumed to be paid at the rate of 10.0% of the preferred stock balance ineach projected year.Common Stock Dividends are assumed to be paid at the rate of 50.0% of net income in each projectedyear.
  • 40. This sample Valuation was generated by American Fortune Mergers & Acquisitions, LLC505 Third Street, Suite 301, Louisville, KY 40202 www.fortunebta.comDiscounted Future Earnings Value CalculationsThe Total Entity Value of Sample Industries, Inc. based on the Discounted Future Earnings method isestimated to be $18,002,037 as shown below. In the Discounted Future Earnings method, EBT has beenprojected for 5 years and each years earnings have been discounted back to present value using an annualdiscount rate of 32.00% and end-of-year discounting calculations.Because it is assumed that the business will continue as a going concern beyond the term of theprojections, a terminal value (also referred to as residual value) has been calculated based on EBT fromprojected year 5. These residual earnings are first capitalized using the capitalization rate of 12.38% andthen that quantity is discounted back to present value using the discount rate of 32.00%.Discounted Future Earnings Projected Discount PresentEBT FactorAnnualized 2010Value2,551,925 0.757576 1,933,278FY 2011 2,737,234 0.573921 1,570,956FY 2012 3,592,857 0.434789 1,562,135FY 2013 4,008,691 0.329385 1,320,403FY 2014 4,346,829 0.249534 1,084,682Terminal value of EBT ** 42,000,625 0.249534Operating value10,480,584Plus: Net nonoperating assets17,952,037Total entity value50,00018,002,037End-of-Year discount factors are based on the Discount Rate of: 32.00%Terminal value is based on the Capitalization Rate of: * 12.38%The sum of the individual present values, including the present value of the terminal value, equals theestimate of Total Entity Value. See the Discount and Capitalization Rates section for the discount ratecalculations.Net nonoperating assets of $50,000 have been added in the determination of Total Entity Value under thismethod because net nonoperating assets do not contribute to the earnings capacity of the business. Seethe Net Asset Value schedule for the presentation of net nonoperating assets.Comparative Company MethodThe notion behind the comparative company method is that prices of publicly traded stocks in the same ora similar industry provide objective evidence as to values at which investors are willing to buy and sellinterests in companies in that industry.In applying the comparative company valuation method, the consultant usually computes a value multiplefor each comparative company. The appropriate multiple is then determined and adjusted for the uniqueaspects of the company being valued. This multiple is then applied to the company being valued to arriveat an estimate of value for the appropriate ownership interest. A value multiple represents a ratio thatuses a comparative companys stock price as the numerator and a measure of the comparative companysoperating results (or financial position) as the denominator. Value multiples are usually computed on aper share basis, but can also be determined by dividing a companys total common stock market value by
  • 41. This sample Valuation was generated by American Fortune Mergers & Acquisitions, LLC505 Third Street, Suite 301, Louisville, KY 40202 www.fortunebta.comits total annual earnings or other measure. The most well known value multiple is price/earnings (P/E)whereby a companys stock price is divided by its earnings per share. The process of computing the valuemultiples normally consists of the following procedures:1. Determination of the appropriate stock price for each comparative company. This represents thenumerator of the multiple.2. Determination of the measure of operating results (earnings, gross cash flow, etc.) for theappropriate time period or financial position as of the valuation date. This represents thedenominator of the multiple.The application of this method depends on the selection of publicly traded comparative companies thatare similar enough to Sample Industries, Inc. so as to provide a meaningful comparison. The following isa discussion of the search for comparative publicly traded companies as it applies to Sample Industries,Inc.Search for ComparativesP/E P/R P/GCF P/D P/BV P/NAV BETAComparable Companies:NYSE Traded Company 10.20 0.60 7.20 0.00 0.00 0.00 0.00Amex Listed Company 7.70 0.70 6.80 0.00 0.00 0.00 0.00Closely Held Company 8.40 1.20 7.90 0.00 0.00 0.00 0.00Average 8.77 0.83 7.30 0.00 0.00 0.00 0.00Median 8.40 0.70 7.20 0.00 0.00 0.00 0.00Standard Deviation 1.05 0.26 0.45 0.00 0.00 0.00 0.00Coefficient of variation 1.11 0.07 0.21 0.00 0.00 0.00 0.00Selected 8.80 0.60 7.30 0.00 0.00 0.00 0.00Comparable Companies from the Completed Transactions DatabasePrime Time Sports, Inc. (Pensylvania)American PassTime Sporting Goods (California)Mergerstat Review DatabaseTransaction Number % NumberToys & Recreational Products 2009 13.8 2 0.0% 0Industry Classification of Seller: Year P/E of Co. Premium of Co.
  • 42. This sample Valuation was generated by American Fortune Mergers & Acquisitions, LLC505 Third Street, Suite 301, Louisville, KY 40202 www.fortunebta.comComparable Companies from the Pratts Stats DatabaseDistributor of Excess Inventories of Sports Equipment and AccessoriesManufacturer - Physical Education, Athletic and Recreational ProductsComparable Companies from the BIZCOMPS DatabaseMfg-Wood PuttersMfg-Outdoor ProductsMfg-Recreational Equip.Price to Earnings MultipleThe Total Entity Value of Sample Industries, Inc. based on the Price to Earnings Multiple method isestimated to be $22,506,931. In the Price to Earnings Multiple method, normalized EBT from the mostrecent historic year times the Price to Earnings Multiple of 8.8 equals the estimate of Total Entity Value.See the Market Comparables Valuation schedule for detailed value calculations.Net nonoperating assets in the amount of $50,000 have been added in the determination of Total EntityValue under this method because net nonoperating assets do not contribute to the earnings capacity of thebusiness. See the Net Asset Value schedule for the presentation of net nonoperating assets.Price to Revenue MultipleThe Total Entity Value of Sample Industries, Inc. based on the Price to Revenue Multiple method isestimated to be $19,867,495. In the Price to Revenue Multiple method, normalized Net Revenue from themost recent historic year times the Price to Revenue Multiple of 0.6 equals the estimate of Total EntityValue. See the Market Comparables Valuation schedule for detailed value calculations.Net nonoperating assets in the amount of $50,000 have been added in the determination of Total EntityValue under this method because net nonoperating assets do not contribute to the earnings capacity of thebusiness. See the Net Asset Value schedule for the presentation of net nonoperating assets.Price to Gross Cash Flow MultipleThe Total Entity Value of Sample Industries, Inc. based on the Price to Gross Cash Flow Multiple methodis estimated to be $24,007,485. In the Price to Gross Cash Flow Multiple method, normalized Gross CashFlow (i.e., adjusted net income plus depreciation and amortization) from the most recent historic year timesthe Price to Gross Cash Flow Multiple of 7.3 equals the estimate of Total Entity Value. See the MarketComparables Valuation schedule for detailed value calculations.Net nonoperating assets in the amount of $50,000 have been added in the determination of Total EntityValue under this method because net nonoperating assets do not contribute to the earnings capacity of thebusiness. See the Net Asset Value schedule for the presentation of net nonoperating assets.
  • 43. This sample Valuation was generated by American Fortune Mergers & Acquisitions, LLC505 Third Street, Suite 301, Louisville, KY 40202 www.fortunebta.comMergerstat Price to Earnings MultipleThe Total Entity Value of Sample Industries, Inc. based on the Price to Earnings Multiple from theMergerstat database is estimated to be $22,124,372. In the Price to Earnings Multiple method,normalized Net Income from the most recent historic year times the Mergerstat Price to Earnings Multipleof 13.8 equals the estimate of Total Entity Value. See the Market Comparables Valuation schedule fordetailed value calculations.Net nonoperating assets in the amount of $50,000 have been added in the determination of Total EntityValue under this method because net nonoperating assets do not contribute to the earnings capacity of thebusiness. See the Net Asset Value schedule for the presentation of net nonoperating assets.Completed Transactions Price to Earnings MultipleThe Total Entity Value of Sample Industries, Inc. based on the selected Price to Earnings Multiple fromthe Completed Transactions database is estimated to be $16,210,566. In the Price to Earnings Multiplemethod, normalized Net Income from the most recent historic year times the selected Price to EarningsMultiple of 10.10 equals the estimate of Total Entity Value. See the Market Comparables Valuationschedule for detailed value calculations.Net nonoperating assets in the amount of $50,000 have been added in the determination of Total EntityValue under this method because net nonoperating assets do not contribute to the earnings capacity of thebusiness. See the Net Asset Value schedule for the presentation of net nonoperating assets.Completed Transactions Price to Revenue MultipleThe Total Entity Value of Sample Industries, Inc. based on the selected Price to Revenue Multiple fromthe Completed Transactions database is estimated to be $19,867,495. In the Price to Revenue Multiplemethod, normalized Net Revenue from the most recent historic year times the selected Price to RevenueMultiple of 0.60 equals the estimate of Total Entity Value. See the Market Comparables Valuationschedule for detailed value calculations.Net nonoperating assets in the amount of $50,000 have been added in the determination of Total EntityValue under this method because net nonoperating assets do not contribute to the earnings capacity of thebusiness. See the Net Asset Value schedule for the presentation of net nonoperating assets.Completed Transactions Price to Cash Flow from Operations MultipleThe Total Entity Value of Sample Industries, Inc. based on the selected Price to Cash Flow fromOperations Multiple from the Completed Transactions database is estimated to be $14,646,244. In thePrice to Cash Flow From Operations Multiple method, normalized Cash Flow from Operations from themost recent historic year times the selected Price to Cash Flow From Operations Multiple of 5.60 equalsthe estimate of Total Entity Value. See the Market Comparables Valuation schedule for detailed valuecalculations.Net nonoperating assets in the amount of $50,000 have been added in the determination of Total EntityValue under this method because net nonoperating assets do not contribute to the earnings capacity of thebusiness. See the Net Asset Value schedule for the presentation of net nonoperating assets.
  • 44. This sample Valuation was generated by American Fortune Mergers & Acquisitions, LLC505 Third Street, Suite 301, Louisville, KY 40202 www.fortunebta.comCompleted Transactions Price to Assets MultipleThe Total Entity Value of Sample Industries, Inc. based on the selected Price to Assets Multiple from theCompleted Transactions database is estimated to be $16,220,799. In the Price to Assets Multiple method,the appraised value of Operating Assets times the selected Price to Assets Multiple of 0.70 equals theestimate of Total Entity Value. The appraised value of Operating Assets is defined here as the appraisedvalue of Total Assets less nonoperating assets as presented in the Net Asset Value schedule. See theMarket Comparables Valuation schedule for detailed value calculations.Net nonoperating assets in the amount of $50,000 have been added in the determination of Total EntityValue under this method because net nonoperating assets do not contribute to the earnings capacity of thebusiness. See the Net Asset Value schedule for the presentation of net nonoperating assets.Completed Transactions Price to Stockholders Equity MultipleThe Total Entity Value of Sample Industries, Inc. based on the selected Price to Stockholders EquityMultiple from the Completed Transactions database is estimated to be $15,991,867. In the Price toStockholders Equity Multiple method, the value of Operating Stockholders Equity times the selectedPrice to Stockholders Equity Multiple of 1.00 equals the estimate of Total Entity Value. The value ofOperating Stockholders Equity is defined here as Total Stockholders Equity less net nonoperating assetsas presented in the Net Asset Value schedule. See the Market Comparables Valuation schedule fordetailed value calculations.Net nonoperating assets in the amount of $50,000 have been added in the determination of Total EntityValue under this method because net nonoperating assets do not contribute to the earnings capacity of thebusiness. See the Net Asset Value schedule for the presentation of net nonoperating assets.Pratts Stats Equity Price to Net Sales MultipleThe Total Entity Value of Sample Industries, Inc. based on the selected Equity Price to Net Sales Multiplefrom the Pratts Stats database is estimated to be $16,564,579. In the Equity Price to Net Sales Multiplemethod, normalized Net Sales from the most recent historic year times the selected Equity Price to NetSales Multiple of 0.50 equals the estimate of Operating Value. See the Pratts Stats Market ComparablesValuation schedule for detailed value calculations.Net nonoperating assets in the amount of $50,000 have been added in the determination of Total EntityValue under this method because net nonoperating assets do not contribute to the earnings capacity of thebusiness. See the Net Asset Value schedule for the presentation of net nonoperating assets.Pratts Stats Equity Price to Gross Cash Flow MultipleThe Total Entity Value of Sample Industries, Inc. based on the selected Equity Price to Gross Cash FlowMultiple from the Pratts Stats database is estimated to be $19,019,077. In the Equity Price to Gross CashFlow Multiple method, normalized Net Income plus Noncash Charges (i.e., depreciation and amortizationexpense) from the most recent historic year times the selected Equity Price to Gross Cash Flow Multiple of5.78 equals the estimate of Operating Value. See the Pratts Stats Market Comparables Valuation schedulefor detailed value calculations.Net nonoperating assets in the amount of $50,000 have been added in the determination of Total Entity
  • 45. This sample Valuation was generated by American Fortune Mergers & Acquisitions, LLC505 Third Street, Suite 301, Louisville, KY 40202 www.fortunebta.comValue under this method because net nonoperating assets do not contribute to the earnings capacity of thebusiness.. See the Net Asset Value schedule for the presentation of net nonoperating assets.Pratts Stats Equity Price to EBT MultipleThe Total Entity Value of Sample Industries, Inc. based on the selected Equity Price to Earnings BeforeTaxes (EBT) Multiple from the Pratts Stats database is estimated to be $16,305,756. In the Equity Priceto EBT Multiple method, normalized Earnings Before Taxes from the most recent historic year times theselected Equity Price to EBT Multiple of 6.37 equals the estimate of Operating Value. See the PrattsStats Market Comparables Valuation schedule for detailed value calculations.Net nonoperating assets in the amount of $50,000 have been added in the determination of Total EntityValue under this method because net nonoperating assets do not contribute to the earnings capacity of thebusiness. See the Net Asset Value schedule for the presentation of net nonoperating assets.Pratts Stats Equity Price to Net Income MultipleThe Total Entity Value of Sample Industries, Inc. based on the selected Equity Price to Net IncomeMultiple from the Pratts Stats database is estimated to be $10,642,371. In the Equity Price to Net IncomeMultiple method, normalized Net Income from the most recent historic year times the selected Equity Priceto Net Income Multiple of 6.62 equals the estimate of Operating Value. See the Pratts Stats MarketComparables Valuation schedule for detailed value calculations.Net nonoperating assets in the amount of $50,000 have been added in the determination of Total EntityValue under this method because net nonoperating assets do not contribute to the earnings capacity of thebusiness. See the Net Asset Value schedule for the presentation of net nonoperating assets.Pratts Stats Deal Price to Net Revenue MultipleThe Total Entity Value of Sample Industries, Inc. based on the selected Deal Price to Net RevenueMultiple from the Pratts Stats database is estimated to be $12,709,302. In the Deal Price to Net RevenueMultiple method, normalized Net Revenue from the most recent historic year times the selected Deal Priceto Net Revenue Multiple of 0.50 results in the Invested Capital Value. Then the Market Value of Long-Term Debt of $3,855,277 is deducted to determine the estimate of Operating Value. See the Pratts StatsMarket Comparables Valuation schedule for detailed value calculations.Net nonoperating assets in the amount of $50,000 have been added in the determination of Total EntityValue under this method because net nonoperating assets do not contribute to the earnings capacity of thebusiness. See the Net Asset Value schedule for the presentation of net nonoperating assets.Pratts Stats Deal Price to EBITDA MultipleThe Total Entity Value of Sample Industries, Inc. based on the selected Deal Price to EBITDA Multiplefrom the Pratts Stats database is estimated to be $21,529,120. In the Deal Price to EBITDA Multiplemethod, normalized EBITDA from the most recent historic year times the selected Deal Price to EBITDAMultiple of 5.26 results in the Invested Capital Value. Then the Market Value of Long-Term Debt of$3,855,277 is deducted to determine the estimate of Operating Value. See the Pratts Stats MarketComparables Valuation schedule for detailed value calculations.
  • 46. This sample Valuation was generated by American Fortune Mergers & Acquisitions, LLC505 Third Street, Suite 301, Louisville, KY 40202 www.fortunebta.comNet nonoperating assets in the amount of $50,000 have been added in the determination of Total EntityValue under this method because net nonoperating assets do not contribute to the earnings capacity of thebusiness. See the Net Asset Value schedule for the presentation of net nonoperating assets.Pratts Stats Deal Price to EBIT MultipleThe Total Entity Value of Sample Industries, Inc. based on the selected Deal Price to EBITDA Multiplefrom the Pratts Stats database is estimated to be $14,877,142. In the Deal Price to EBIT Multiplemethod, normalized EBIT from the most recent historic year times the selected Deal Price to EBITMultiple of 5.96 results in the Invested Capital Value. Then the Market Value of Long-Term Debt of$3,855,277 is deducted to determine the estimate of Operating Value. See the Pratts Stats MarketComparables Valuation schedule for detailed value calculations.Net nonoperating assets in the amount of $50,000 have been added in the determination of Total EntityValue under this method because net nonoperating assets do not contribute to the earnings capacity of thebusiness. See the Net Asset Value schedule for the presentation of net nonoperating assets.BIZCOMPS Sales Price to Revenue MultipleThe Total Entity Value of Sample Industries, Inc. based on the selected Sales Price to Revenue Multiplefrom the BIZCOMPS database is estimated to be $24,871,557. In the Sales Price to Revenue Multiplemethod, normalized Net Revenue from the most recent historic year times the selected Sales Price toRevenue Multiple of 0.63 results in the Operating Value Before Net Assets. Then, Current Assets of$9,122,730, Long-Term Investments of $2,093,341, and Other Noncurrent Assets (except NonoperatingAssets) of $893,666 are added and Total Liabilities (except Nonoperating Liabilities) $7,159,275 arededucted to determine the estimate of Operating Value. See the BIZCOMPS Market ComparablesValuation schedule for detailed value calculations.Net nonoperating assets in the amount of $50,000 have been added in the determination of Total EntityValue under this method because net nonoperating assets do not contribute to the earnings capacity of thebusiness. See the Net Asset Value schedule for the presentation of net nonoperating assets.BIZCOMPS Sales Price to Sellers Discretionary Cash Flow MultipleThe Total Entity Value of Sample Industries, Inc. based on the selected Sales Price to SellersDiscretionary Cash Flow Multiple from the BIZCOMPS database is estimated to be $17,843,341. In theSales Price to Sellers Discretionary Cash Flow Multiple method, the Sellers Discretionary Cash Flowfrom the most recent historic year times the selected Sales Price to Sellers Discretionary Cash FlowMultiple of 3.39 results in the Operating Value Before Net Assets. Then, Current Assets of $9,122,730,Long-Term Investments of $2,093,341, and Other Noncurrent Assets (except Nonoperating Assets) of$893,666 are added and Total Liabilities (except Nonoperating Liabilities) $7,159,275 are deducted todetermine the estimate of Operating Value. See the BIZCOMPS Market Comparables Valuation schedulefor detailed value calculations.Net nonoperating assets in the amount of $50,000 have been added in the determination of Total EntityValue under this method because net nonoperating assets do not contribute to the earnings capacity of thebusiness.. See the Net Asset Value schedule for the presentation of net nonoperating assets.
  • 47. This sample Valuation was generated by American Fortune Mergers & Acquisitions, LLC505 Third Street, Suite 301, Louisville, KY 40202 www.fortunebta.comCapitalization of Excess EarningsUsually, intangible assets are not reported on the balance sheet unless purchased. However, the existenceof and the value for any intangible assets should be considered. A number of methodologies have beendeveloped to estimate intangible assets of a business. One commonly used method is the excess earningsmethod. The excess earnings method was developed by the U.S. Treasury Department in 1920 inAppeals and Review Memorandum 34 (ARM34). Its current version is found in Revenue Ruling 68-609.The excess earnings method is commonly used in valuing small businesses and professional practices. TheInternal Revenue Service suggests that it is to be used only when no better basis exists for separatelyestimating the value of the intangible assets.The model for the excess earnings method computes the companys equity value based on the "appraised"value of tangible assets plus an additional amount for intangible assets. A companys tangible assetsshould provide a current return to the owner. Since there are risks associated with owning the companysassets, the rate of return on those assets should be commensurate with the risks involved. That rate ofreturn should be either the prevailing industry rate of return required to attract capital to that industry oran appropriate rate above the risk-free rate. Any returns produced by the company above the rate ontangible assets are considered to arise from intangible assets. Accordingly, the weighted averagecapitalization rate for tangible assets and intangible assets should be equivalent to the capitalization rateof the entire company.In using the excess earnings method, a reasonable rate of return on net tangible assets was first calculatedbased on the cost of borrowing against those assets plus the cost of equity required to support theremaining investment in those assets, as shown in the following schedule.Percent ofCost Total Capital WeightedRequired Return on Debt 4.88% 23.8% 1.16%Required Return on Equity 10.35% 76.2%Rate of Return on Net Tangible Assets7.88%9.04%(See the Rate of Return on Net Tangible Assets schedule for the calculation of the required return ondebt.)Then, weighted average, normalized EBT is compared to the reasonable rate of return. Excess earningsare defined as the difference between the weighted average earnings and the "normal" return. Theseexcess earnings are then capitalized using the excess earnings capitalization rate of 15.35%. Therefore,capitalized excess earnings are an estimate of intangible value. This intangible value is then added to theappraised value of net tangible equity to estimate Total Entity Value. See the Income StatementAdjustments section for a listing of any adjustments made to historic earnings, the Discount andCapitalization Rates section for the excess earnings capitalization rate and the Net Asset Value schedulefor the appraised value of net tangible equity.
  • 48. This sample Valuation was generated by American Fortune Mergers & Acquisitions, LLC505 Third Street, Suite 301, Louisville, KY 40202 www.fortunebta.comAs shown below, the Total Entity Value of Sample Industries, Inc. based on the Capitalization of ExcessEarnings approach is estimated to be $17,621,902.Capitalization of Excess Earnings Normalized Weighting WeightedEBT FactorFiscal Year End 2005Earnings770,927 1.0 770,927Fiscal Year End 2006 970,061 2.0 1,940,122Fiscal Year End 2007 1,080,336 3.0 3,241,008Fiscal Year End 2008 1,257,844 4.0 5,031,376Fiscal Year End 2009 1,898,672 5.0 9,493,360Annualized 2010 2,551,924 6.0Sum of Weighted earnings15,311,544Divided by: Sum of weighting factors35,788,337Weighted average earnings21.0Net tangible assets1,704,20715,738,201Multiplied by: Rate of return on net tangible assetsNormal return on net tangible assets9.04%1,422,733Weighted average earnings 1,704,207Less: Normal return on net tangible assetsExcess Earnings1,422,733281,473Divided by: Excess earnings capitalization rateIntangible value15.35%1,833,701Plus: Net tangible assetsOperating value15,738,20117,571,902Plus: Net nonoperating assetsTotal entity value50,00017,621,902Net nonoperating assets in the amount of $50,000 have been added in the determination of Total EntityValue under this method because net nonoperating assets do not contribute to the earnings capacity of thebusiness. See the Net Asset Value schedule for the presentation of net nonoperating assets.
  • 49. This sample Valuation was generated by American Fortune Mergers & Acquisitions, LLC505 Third Street, Suite 301, Louisville, KY 40202 www.fortunebta.comMultiple of Discretionary EarningsThe multiple of discretionary earnings method is best suited to businesses where the salary and perquisitesof an owner represent a significant portion of the total benefits generated by the business and/or thebusiness is typically run by an owner/manager. Discretionary earnings is equal to the Companys earningsbefore: income taxes, nonoperating income and expenses, nonrecurring income and expenses,depreciation and amortization, interest income or expense, and owners total compensation for servicesthat could be provided by an owner/manager. Buyers and sellers of very small closely held businessestend to think in terms of income to replace their previous paycheck or income to support their family.They look at the total discretionary earnings to see if it is sufficient to pay all the operating expenses ofthe business, carry the debt structure necessary to buy and/or operate the business, and provide anadequate wage.The total entity value of Sample Industries, Inc. using the Multiple of Discretionary Earnings method isestimated to be $6,474,862 as shown below.Multiple of Discretionary Earnings Normalized Weighting WeightedEBT FactorFiscal Year End 2005Earnings770,927 1.0 770,927Fiscal Year End 2006 970,061 2.0 1,940,122Fiscal Year End 2007 1,080,336 3.0 3,241,008Fiscal Year End 2008 1,257,844 4.0 5,031,376Fiscal Year End 2009 1,898,672 5.0 9,493,360Annualized 2010 2,551,924 6.0Sum of Weighted earnings15,311,54435,788,337Divided by: Sum of weighting factorsWeighted average earnings21.01,704,207Plus: Normalized owners salary & benefits 183,750Plus: Normalized interest expense 582,710Plus: Normalized depreciation & amortization expense 1,681,791Less: Normalized interest income 248,187Less: Required capital expendituresDiscretionary earnings929,9992,974,272Multiplied by: Value multipleValue of operating assets1.54,461,407Plus: Normalized net working capital 7,271,427Plus: Net nonoperating assets 50,000Less: Interest-bearing debtTotal entity value5,307,9726,474,862See the Valuation Multiple Development Worksheet for the factors considered in the development of theselected valuation multiple. Also see the most recent normalized balance sheet for the presentation ofnormalized net working capital and the Net Asset Value schedule for the presentation of interest-bearingdebt.
  • 50. This sample Valuation was generated by American Fortune Mergers & Acquisitions, LLC505 Third Street, Suite 301, Louisville, KY 40202 www.fortunebta.comConclusions of ValueWeightedMethod Value Weight ValueNet Asset Value 13,304,898 0.0 0Liquidation Value 9,413,963 0.0 0Capitalization of Earnings 16,515,764 0.0 0Discounted Future Earnings 18,002,037 1.0 18,002,037Discounted Net Cash Flow 2,271,015 0.0 0Price to Earnings Multiple 22,506,931 0.0 0Price to Revenue Multiple 19,867,495 0.0 0Price to Gross Cash Flow Multiple 24,007,485 0.0 0Price to Dividends Multiple 0 0.0 0Price to Book Value Multiple 0 0.0 0Price to Net Asset Value Multiple 0 0.0 0Mergerstat Price to Earnings Multiple 22,124,372 0.0 0Completed Transactions Price to Earnings Multiple 16,210,566 0.0 0Completed Transactions Price to Revenue Multiple 19,867,495 0.0 0Completed Transactions Price to CFO Multiple 14,646,244 0.0 0Completed Transactions Price to Assets Multiple 16,220,799 0.0 0Completed Transactions Price to Equity Multiple 15,991,867 0.0 0Pratts Stats Equity Price to Net Revenue Multiple 16,564,579 0.0 0Pratts Stats Equity Price to Gross Cash Flow Multiple 19,019,077 0.0 0Pratts Stats Equity Price to EBT Multiple 16,305,756 0.0 0Pratts Stats Equity Price to Net Income Multiple 10,642,371 0.0 0Pratts Stats Equity Price to Discr. Earnings Mult. 0 0.0 0Pratts Stats Deal Price to Net Revenue Multiple 12,709,302 0.0 0Pratts Stats Deal Price to EBITDA Multiple 21,529,120 0.0 0Pratts Stats Deal Price to EBIT Multiple 14,877,142 0.0 0BIZCOMPS Price to Net Revenue Multiple 24,871,557 0.0 0BIZCOMPS Price to Sellers Discr. Cash Flow Mult. 17,843,341 0.0 0Capitalization of Excess Earnings 17,621,902 0.0 0Multiple of Discretionary Earnings 6,474,862 0.0 0Sum of weighted values 18,002,037Divided by: Sum of weights 1.0Weighted average total entity value 18,002,037Selected total entity value 18,000,000Less: Fair market value of preferred stock 1,200,000Fair market value of common equity 16,800,000See the respective supporting schedules for the individual value calculations.
  • 51. This sample Valuation was generated by American Fortune Mergers & Acquisitions, LLC505 Third Street, Suite 301, Louisville, KY 40202 www.fortunebta.comAppendix 1 — RepresentationsThe following factors guided our work during this engagement: The analyses, opinions, and conclusions of value included in this report are subject to theassumptions and limiting conditions specified previously in this report, and they are our personalanalyses, opinions, and conclusion of value. The economic and industry data included in this report were obtained from sources that webelieved to be reliable. We have not performed any corroborating procedures to substantiate thatdata. This engagement was performed in accordance with the American Institute of Certified PublicAccountants Statement on Standards for Valuation Services. We have previously identified the parties for whom this information and report have beenprepared. This valuation report is not intended to be, and should not be, used by anyone otherthan those parties. Our compensation for this engagement is not contingent on the outcome of this valuation. We have no obligation to update this report or our opinion of value for information that comes toour attention after the report date.(Signature) (Date)

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